When is a commercial property lease really a licence? It is important to know the difference…
Many commercial property clients grapple with the question of how to categorise and document the occupation of a property. Whilst many landlords would like to get an occupier into their property as soon as possible, to cover the running costs for example, it is important to take care with the paperwork and ensure the documentation accurately reflects the intention of both parties from the outset – that way, when the time comes to end the agreement, both parties should know exactly where they stand.
There are various ways in which a property can be legally occupied, each with its own characteristics and legal consequences. The most commonly confused are leases and licences to occupy, and confusing these two categories can have potentially detrimental effects.
A lease gives the occupier a legal interest in the property, for a specified term, in return for the payment of rent. One of the key elements of a lease is the concept of exclusive possession granting the tenant power to prevent the owner entering the property except in very specific circumstances.
A licence, however, conveys a personal right offering no security. It entitles the licensee to use the land for the purpose authorised by the licence, so the occupier cannot be deemed to be committing trespass, but a licence does not create a legal right nor bestow upon a tenant the right to exclusive possession.
Depending on the characteristics of the agreement, different rights are conferred to the occupier, many of which are unfavourable for the landlord – and whether an arrangement is a lease or a licence depends on specific circumstances, irrespective of how the agreement is labelled.
For a landlord, one of the main problems with a lease is that an occupying tenant may have a statutory right to renew the tenancy at the end of its term, whether or not this was intended at the outset. This may have serious consequences if the landlord had been planning on redeveloping or re-letting the property once the agreement had run its course.
As so often is the case, the devil really is in the detail, so all parties to rental agreements should be absolutely clear about their requirements before signing on the legal dotted line. Failure to do so may result in a very costly break-up.
Kate Gibbs. Solicitor, Commercial property department
Business, Commercial Property, General, George Ide, News